Stanley Securities September 23, 2010. Introduction David Lin, Investment Grade Credit Research Shengbiao Luo, Credit Hybrids Sales Casey Wang, Market.

Slides:

Advertisements

Similar presentations

Copyright© 2003 John Wiley and Sons, Inc. Power Point Slides for: Financial Institutions, Markets, and Money, 8 th Edition Authors: Kidwell, Blackwell,

Advertisements

Introduction To Credit Derivatives Stephen P. D Arcy and Xinyan Zhao.

Credit Default Swaps Can someone explain to Brian Williams what a CDS is? An insurance policy taken out by a buyer of a bond against the risk of default.

Chapter 3 Introduction to Forward Contracts

Credit Derivatives.

Options An option is a financial contract in which one party (the buyer) MAY buy (for a Call option) or sell (for a Put option) a specified quantity of.

Financial Risk Management of Insurance Enterprises Interest Rate Caps/Floors.

Credit Risk in Derivative Pricing Frédéric Abergel Chair of Quantitative Finance École Centrale de Paris.

Stanley Securities September 23, David Lin, Investment Grade Credit Research Shengbiao Luo, Credit Hybrids Sales Casey Wang, Market Risk Management.

FRM Zvi Wiener Following P. Jorion, Financial Risk Manager Handbook Financial Risk Management.

FRM Zvi Wiener Following P. Jorion, Financial Risk Manager Handbook Financial Risk Management.

REUTERS 3000 XTRA University of Hong Kong Trading Workshop David Lo Class 5 Treasury Workshop III Interest Rate Derivatives.

FRM Zvi Wiener Swaps.

Drake DRAKE UNIVERSITY Fin 288 Credit Derivatives Finance 288 Futures Options and Swaps.

FRM Zvi Wiener Following P. Jorion, Financial Risk Manager Handbook Financial Risk Management.

Saunders & Cornett, Financial Institutions Management, 4th ed. 1 “History teaches us that men and nations behave wisely once they have exhausted all other.

FRM Zvi Wiener Following P. Jorion, Financial Risk Manager Handbook Financial Risk Management.

Credit Derivatives R 張智烜. Credit Derivatives Market risks Credit Default Swap(CDS)

17-Swaps and Credit Derivatives

Derivatives Markets The 600 Trillion Dollar Market.

FRM Zvi Wiener Swaps.

REUTERS 3000 XTRA University of Hong Kong Trading Workshop David Lo Class 7 Fixed Income Workshop II Credit Default Swap Markets.

Lecture 6: The Forward Exchange Market

D. M. ChanceAn Introduction to Derivatives and Risk Management, 6th ed.Ch. 1: 1 Chapter 1: Introduction The speed of money is faster than it’s ever been.

Credit spread Forward A credit spread forward (CSF) is a contract where two parties agree to pay or receive a future spread that depends on the difference.

SWAPS 2 Decomposition & Combination. Currency Swaps Also called Cross currency swaps (XCCY). The legs of the swap are denominated in different currencies.

Credit Derivatives Chapter 21.

Lecture 6: The Forward Exchange Market Understanding Forward Exchange Quotes and the Use of the Forward Market.

Options, Futures, and Other Derivatives 6 th Edition, Copyright © John C. Hull Credit Derivatives Chapter 21.

Credit Default Swap Spreadsheet Instructions For 5 year and 10 year CDS.

Introduction to Credit Derivatives Uwe Fabich. Credit Derivatives 2 Outline  Market Overview  Mechanics of Credit Default Swap  Standard Credit Models.

Lecture Presentation Software to accompany Investment Analysis and Portfolio Management Eighth Edition by Frank K. Reilly & Keith C. Brown Chapter 20.

Uses of Derivatives for Risk Management Charles Smithson Copyright 2004 Rutter Associates, LLC Assessing, Managing and Supervising Financial Risk The World.

Mortgage Credit Events & Floating Rate Payment Events Document Usage restricted to ISDA/FpML Working Group 10 July 2007.

7 May 2001 International Swaps and Derivatives Association Mexico City Derivatives and Risk Management in Mexico Interest Rate and Currency Derivatives.

Credit Derivatives Advanced Methods of Risk Management Umberto Cherubini.

Copyright © 2001 by Harcourt, Inc. All rights reserved.1 Chapter 1: Introduction You’re into derivatives whether you like it or not. Your adjustable rate.

I Investment Analysis and Portfolio Management First Canadian Edition By Reilly, Brown, Hedges, Chang 13.

Financial Derivatives Chapter 12. Chapter 12 Learning Objectives Define financial derivative Explain the function of financial derivatives Compare and.

3. Outright forwards International Financial Services 1 Karel Bruna.

Paola Lucantoni Financial Market Law and Regulation.

Introduction to Derivatives

Derivatives and it’s variants

International Financial Services I Karel Bruna

Derivatives. What is Derivatives? Derivatives are financial instruments that derive their value from the underlying assets(assets it represents) Assets.

CMA Part 2 Financial Decision Making Study Unit 5 - Financial Instruments and Cost of Capital Ronald Schmidt, CMA, CFM.

April 20 th, 2011 FIRMA Annual Conference Atlanta, GA W. A. (Trey) Ruch, III Executive Managing Director Sterne Agee Group Derivatives:

Collateralized Debt Obligations Fabozzi -- Chapter 15.

Fundamentals of Futures and Options Markets, 7th Ed, Ch 23, Copyright © John C. Hull 2010 Credit Derivatives Chapter 23 1.

1 MGT 821/ECON 873 Financial Derivatives Lecture 1 Introduction.

Stanley Securities September 23, Introduction David Lin, Investment Grade Credit Research Shengbao Luo, Credit Hybrids Sales Casey Wang, Market.

Chapter 24 Credit Derivatives

Credit Derivatives Chapter 29. Credit Derivatives credit risk in non-Treasury securities  developed derivative securities that provide protection against.

David KilgourLecture 91 Foundations of Finance Lecture 6 Option Pricing Read: Brealey and Myers Chapter 20 Practice Questions 2, 3 and 14 on page612 Workshop.

Chapter 26 Credit Risk. Copyright © 2006 Pearson Addison-Wesley. All rights reserved Default Concepts and Terminology What is a default? Default.

Options. INTRODUCTION One essential feature of forward contract is that once one has locked into a rate in a forward contract, he cannot benefit from.

Stanley Securities September 23, 2010 David Lin Shengbao Luo Casey Wang George Wang Peilin Zhang.

Chapter 15: Financial Risk Management: Concepts, Practice, & Benefits

Financial Risk Management of Insurance Enterprises Forward Contracts.

Fundamentals of Futures and Options Markets, 7th Ed, Ch 23, Copyright © John C. Hull 2010 Credit Derivatives Chapter 23 Pages 501 – 515 ( middle) 1.

Derivatives in ALM. Financial Derivatives Swaps Hedge Contracts Forward Rate Agreements Futures Options Caps, Floors and Collars.

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.1 CHAPTER 32 Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized.

Laura Shalayeva IES  What does “credit derivative” mean?  Credit events  Market size  Types of credit derivatives  Credit default swap.

Chapter 03 Currency and Eurocurrency Derivatives Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

CREDIT RISK Ryan HanEol Jang Yonsei GSIS Int’l Trade and Finance.

Lecture Presentation Software to accompany Investment Analysis and Portfolio Management Seventh Edition by Frank K. Reilly & Keith C. Brown Chapter.

Derivative Markets and Instruments

MMA708-ANALYTICAL FINANCE II

Credit Default Swap Protection Buyer premium (say 40 bps) Protection

Professor Chris Droussiotis

Presentation transcript:

Stanley Securities September 23, 2010

Introduction David Lin, Investment Grade Credit Research Shengbiao Luo, Credit Hybrids Sales Casey Wang, Market Risk Management George Wang, Credit Hybrids Trading Peilin Zhang, Quantitative Credit Strategies

The Objective Offer counterparty default protection against deep in the money FX Forward: Counterparty: UJB Financial Notional: 500MM EUR Time to maturity: 3 years Contractual forward price: $1.024/EUR Spot USD/EUR rate: $1.22/EUR Current Exposure: $98MM Need protection against UJB’s gradual financial distress

The Solution Rating Contingent Credit Default Swap (RCCDS) Credit protection contingent on rating downgrade Notional of default payoff contingent on mark to market value of FX forward Significant reduction in protection cost

Payoff Scenario

Term Sheet Protection Seller: Stanley Securities Protection Buyer: Rauxon Energy Co. Trade Date: 10/1/2010 Expiration Date: 9/30/2013 Reference Entity: UJB Financial Seller Pays: Payoff: (FX Forward Market Value) + × (1 – Recovery) Credit Event: Downgrade, followed by failure to pay Settlement: Cash (USD) Buyer pays: 11 bps on $500MM notional Standardized quarterly schedule

Deal Comparison Notional ($MM) Protection PV ($MM) Upfront price points Running Spread (bps) CDS (40% recovery) CDS (25% recovery) CDS (25% recovery on current FX forward MV) Full protection on expected FX forward MV RCCDS % reduction in premium compared with full protection

Cash flows Risk Leg Premium Leg Time UJB downgrades

Suitability and Limitations No protection against out of blue default (client specifically asks for) May need to remake the FX Forward trade $500,000 to your bottom line